POTTSTOWN PA – Here’s good news: the Pottsgrove School District has money in the bank, more than $500,000, it could use to reduce a $1.9 million deficit and lower property taxes in its proposed 2013-2014 preliminary budget. Here’s bad news, according to Business Administrator David Nester: spending that cash could hurt the district’s future borrowing ability.
That’s how the annual conversation over the district fund balance, the amount of reserves kept on hand to meet future obligations and cover emergency needs, started Tuesday (Jan. 22, 2013) during the Board of School Directors’ meeting. How it ends months from now, when a new budget is finally adopted in June, is what directors must decide.
Nester told board members the district began its current academic year with a fund balance of $10.64 million. It sounds like a lot, he agreed, but more than $7 million is “committed and assigned,” meaning it’s already dedicated for other uses. What will remain is about $3.67 million, or slightly more than 5 percent of the district’s current $58 million budget.
Five percent is a magic number, Nester explained to a board that – for the most part – knows his argument by heart. It lets creditors, who loan Pottsgrove money, think of their investment as secure. It allows credit rating agencies, which advise lenders on the risks of loaning to Pottsgrove, to report they’re likely to get all their money back … on time and with interest. It enables Pottsgrove to borrow money at cheaper rates.
And borrowing may be on the district horizon. Needed structural repairs to the high school are under way, and administrators hope they can also expand and renovate the building during the next three years. To do that, Pottsgrove must take out loans for millions more, and it will need its good credit rating to suitably impress lenders.
It may lose it, Nester warned, if the district transfers $500,000 or more to its operating fund to prop up next year’s budget. Under such circumstances, he estimated, the fund balance could drop to only 3.7 percent, well enough below the magic number to make a difference to those whose deeper pockets the district would like to tap.
“It would negatively affect our bond ratings,” he said matter-of-factly.
Solutions are limited, directors acknowledged. They could raise tax rates significantly higher and face property owners’ wrath; that’s an option they’d prefer to avoid. They could choose to skip future borrowing, but crowded and inefficient operations at the high school might only worsen conditions there if left unresolved. Or they might find expenses to carve out of the proposed 2013-2014 budget and keep its fund balance magical.
As the conversation ended, you could almost hear knife sharpeners revving in the background.
Related (to the Pottsgrove School District 2013-’14 budget):
Related (to the Pottsgrove Board of School Directors’ Jan. 22 meeting):
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